Thread by @adamsmithworks

We're back with more thoughts of #AdamSmith about the tools of mercantilism. Today: Bounties! (IV.v.) #WealthOfTweets #SmithTweets

Today we'd call bounties subsidies, which makes it much harder to use a Boba Fett gif.

So we're sticking with bounties. (IV.v.a.1) #WealthOfTweets #SmithTweets

Everyone admits, says Smith, that bounties shouldn't be given to industries or endeavors that could happen without them. But that means you're only going to give them to endeavors that can't pay for themselves. (IV.v.a.2) #WealthOfTweets #SmithTweets

If you pay people to carry on doing things that don't pay for themselves, capital ends up being consumed by the things that they're doing. They get poorer.

That's bad. (IV.v.a.2) #WealthOfTweets #SmithTweets

People worry about being the "loser" in international trade, but trade that's paid for by bounties is the only kind of trade that can go on for any length of time while either side loses. (IV.v.a.3) #WealthOfTweets #SmithTweets

Because the mercantile system worries about the balance of trade and not the balance of production/consumption, its "expedients" force trade into less productive areas. (IV.v.a.3) #WealthOfTweets #SmithTweets

We have a feeling that when Smith repeatedly refers to "the ingenious and well-informed author" that he spends a little time debunking here, he's not being altogether sincere. #SmithSnark (IV.v.a.4&8) #WealthOfTweets

Of course bounties on corn exports increase the price of corn in the home market. The point of bounties on corn exports is to increase the price of corn in the home market. But people are surprised. (IV.v.a.6–7) #WealthOfTweets #SmithTweets

Corn bounties make corn (by this, Smith really means food) more expensive so the poor can't feed themselves, and bounties make hiring the poor more expensive so resources are idle. This puts a cap on population and growth.

That's bad. (IV.v.a.8) #WealthOfTweets #SmithTweets

But surely, if the price of corn is higher there will be more corn farmers and that will mean more corn!

Nah, says Smith. For him, the money price of corn regulates all other prices. Messing with it messes up everything. (IV.v.a.10–15) #WealthOfTweets #SmithTweets

Smith digresses, YET AGAIN, on silver. (IV.v.a.16–21) #WealthOfTweets #SmithTweets

This part is going to make your head hurt a little if you are familiar with price theory. There's a reason the #LaborTheoryOfValue is defunct.
For Smith, corn is super special and sets the price of everything.
For us, that is unhelpful. (IV.v.a.21–23) #WealthOfTweets

Smith still thinks country gentlemen are hapless. (IV.v.a.24) #WealthOfTweets #SmithTweets

Bounties for exporting goods that aren't corn are more successful if the goal is increasing production. So why not just pay a bounty for increased production? Smith thinks it would make more sense. (IV.v.a.24–25) #WealthOfTweets #SmithTweets

Like, he's not in favor of bounties on production. He just thinks if you're going to channel industry into unproductive channels, you could at least do it with only one tax. (IV.v.a.24) #WealthOfTweets #SmithTweets

Unfortunately, the mercantile system says that wealth comes from exports, not production. So bounties are on exports.
Plus, merchants wouldn't want to flood markets with their goods and drive prices down. Better to export. (IV.v.a.24) #WealthOfTweets #SmithTweets

OK we don't entirely get it but Smith is really preoccupied with herring. It's going to come back around later. (IV.v.a.29–35) #WealthOfTweets #SmithTweets

Are bounties ever a good idea?

National security is a reasonable public expense, so you might be able to support it by encouraging production of things like gunpowder or sailcloth in case you need to wage war with France or something. (IV.v.a.36) #WealthOfTweets #SmithTweets

Unfortunately, lots of countries are so wealthy they'll pay for all sorts of unjustified bounties because of public prejudice that supports the mercantile system.
Alas. (IV.v.a.37) #WealthOfTweets #SmithTweets

Smith is VERY concerned that we may not have paid enough attention to his thoughts on corn, so he'll be digressing on the subject tomorrow. See you then! #WealthOfTweets #SmithTweets